Updated October 31, 2025 at 11:30 a.m.
On October 30, the U.S. Department of Education issued its final rule on eligibility for the Public Service Loan Forgiveness Program (PSLF). Unforunately, the final rule dismissed most of the public comments from the Center and more than 13,000 other organizations and individuals, and made no substantive changes from the proposed rule that the Department released in August.
Under PSLF, student loan borrowers who work in public service jobs – including positions with 501(c)(3) nonprofits – for 10 years while paying off their student loans are eligible to have the remainder of their federal student loans forgiven. PSLF has enabled many young professionals to afford careers in the nonprofit sector.
The final rule excludes employers – potentially including some 501(c)(3) nonprofits – from being eligible employers for PSLF if they are engaged in “substantial illegal purposes” that include:
- Aiding or abetting violations of federal immigration laws;
- Supporting terrorism;
- Engaging in chemical or surgical castration or mutilation of children;
- Engaging in child trafficking;
- Engaging in a pattern of aiding and abetting illegal discrimination in violation of federal anti-discrimination laws (which could potentially be construed broadly to cover programs and employment practices that provide preferences based on race or proxies for race); and
- Engaging in a pattern of violating certain state laws, including trespassing, disorderly conduct, public nuisance, vandalism, or obstruction of highways.
Under the final rule, the Secretary of Education will have the authority to determine “by a preponderance of the evidence” that an otherwise eligible nonprofit has engaged in activities that have a substantial illegal purpose with only minimal due process for the nonprofit. Once a nonprofit has been deemed to have engaged in activities that have a substantial illegal purpose, it will remain an ineligible employer for PSLF for at least 10 years. The final rule also requires that nonprofits must certify in their application to be a PSLF-eligible employer that they did not participate in activities that have a substantial illegal purpose, which may be difficult and unclear for staff to determine if the organizaiton provides services in certain mission areas or to particular populations. The Center is deeply concerned that this new rule will affect PSLF eligibility for some nonprofit employees.
In September, the Center submitted public comments highlighting the importance of PSLF to North Carolina nonprofits, their employees, and their communities and provided 10 suggestions for the ways the Department could improve its proposal in the final rule. Unfortunately, the final rule largely ignored or disregarded most of the Center’s suggestions, along with the feedback from most of the other public comments.
In case you don’t want to read the full 185-page final rule, here are some highlights on issues that nonprofits have mentioned to the Center as concerns:
- The Department’s comments in the final rule address many nonprofits’ concerns that organizations providing services to refugees and immigrants could be deemed ineligible employers for PSLF. The Department notes that organizations providing services to, or advocating for, refugees and undocumented immigrants are not engaged in “substantial illegal purposes” unless they “aid and abet in criminal activity.”
- The Department rejected many nonprofits’ concerns that the rule will allow it to declare nonprofits ineligible employers for PSLF for political reasons, notably if they are operating for purposes that are inconsistent with White House priorities. The Department explained that it “would have no basis to remove eligibility from nonprofits engaged in work related to immigrant communities, LGBTQ+ individuals, or racial justice if those organizations are following the law.” However, the Department also noted that it selected the types of activities that would constitute “substantial illegal purposes” based on the direction of an Executive Order (EO 14235) issued by President Trump in March.
- While the Department “rejects the idea that ordinary, lawful assistance such as legal advice, medical care, or humanitarian support could trigger PSLF disqualification”, it suggests that it could determine that nonprofit organizations themselves were engaged in “aiding and abetting” criminal activity if numerous employees aided and abetted in criminal activities at the direction of their employer.
- As the Center recommended in its public comments, the Department made slight modifications to its review process to clarify that it “will weigh the seriousness of offenses and the frequency with which they occurred when determining if an organization...has a substantial illegal purpose for PSLF eligibility purposes.”
- In our public comments, the Center noted that the new certification process for PSLF-eligible employers could cause some nonprofits to lose their status as qualifying employers for the purposes of PSLF either because they were unaware of the new certification requirement or because they were uncomfortable certifying that they did not participate in activities with substantial illegal purposes because of concerns that the definitions of such activities are unclear or ambiguous. The Department acknowledged this issue, explaining that it “will reject an individual application if the section about the employer’s certification that it did not engage in substantial illegal activities is omitted or missing. The Department, via the borrower, will provide the employer an opportunity to correct the application and provide the requested information. However, when an employer consistently fails or refuses to provide a certification on multiple applications, the Department may consider disqualifying the employer.”
- The Department anticipates that the final rule will serve primarily as a deterrent from nonprofits engaging in “substantial illegal purposes.” Somewhat surprisingly, given the broad scope of activities that are covered, the final rule notes that “the Department expects that it will only take action to remove PSLF program eligibility for less than ten employers per year.” Yet, the Department argued that the “costs associated with employer review and administration” would be “modest”.
The final rule takes effect on July 1, 2026 and will only apply to “substantial illegal activities” that take place after that date. This means that nonprofits with employees currently in the PSLF program (or those that might have PSLF-eligible employees in the future) have eight months to review their operations to ensure that they are not engaged in “substantial illegal activities” as defined (quite broadly) in the rule and to make any necessary changes so that they are in compliance by July 1, 2026.
The final rule was published on the Federal Register on October 31 (making it official). It is likely that it will be challenged in federal court.
